Monday, February 1, 2010

Here are two charts that illustrate how effective free markets can be in the conservation of energy. As the first chart shows, consumers spend less of their income on energy today than they did in in 1970, despite the fact that the price of oil—the source of most energy—has risen some 600% in the intervening years in real terms, as shown in the second chart.

But here's a more accurate description of what has happened: since oil prices have risen 600% in the past 40 years, consumers now spend 13% less of their income on energy. Rising oil prices have spurred conservation and technological advances that have drastically reduced the amount of oil we need to run our lives and our economy. As this next chart shows, the U.S. economy today uses 57% less oil per unit of output than it did in 1970.

Free markets have thus accomplished the task of greatly reducing our energy dependence. We don't need any federal mandates or new programs or new spending to develop "green" energy. It's a process that is already well underway.

In fact, mandates would inevitably create market distortions that undermine the effectiveness of conservation actions. Central planners can never beneficially substitute their judgments for the those of the market place. It's even worse than that, however. Look at the ethanol debacle; decisions made in Washington are always political.

"Does not require" is hugely understating your point. But your data should help to convince the non-believers.

Yes, as economies develop, they require less energy per unit of output. But only an extreme libertarian economist, blind to anything that may challenge their orthodoxy, would suggest the efficiency increases that we've seen were solely the result of the invisible hand.